SocGen Profit Beats Estimates on French Consumer Banking

A pedestrian uses a mobile device as they pass a Societe Generale SA bank branch in Paris. Photographer: Balint Porneczi/Bloomberg

Feb. 12 (Bloomberg) -- Societe Generale SA, France’s
second-largest bank, more than doubled a dividend payout to
shareholders as fourth-quarter profit beat analysts’ estimates,
helped by earnings at consumer banking units. The shares rose
the most in more than six months.

Net income was 322 million euros ($439 million), compared
with a loss of 471 million euros a year earlier, when Societe
Generale wrote down a stake in a derivatives broker, the Paris-based company said today. The profit surpassed the 163 million-euro average estimate of nine analysts surveyed by Bloomberg.

Societe Generale said it will pay investors a dividend of 1
euro a share from last year’s earnings, up from 45 cents the
previous year and beating analysts’ estimate of 78 cents. The
bank will target a dividend payout of 40 percent of earnings for
2014, compared with 27 percent in 2013, it said.

“They are in a favorable position to grow and to reward
shareholders,” said Alex Koagne, a Paris-based analyst at
Natixis SA, who has a buy rating on the stock. “The dividend is
really good news, and the revenue in the French retail banking
unit behaved well.”

Europe’s economy is emerging from a record-long recession,
boosting Societe Generale’s earnings from consumer banking. The
lender’s revenue rose in France and Russia, helped by an
increase in deposits, and achieved more a third of its 900
million-euro annual cost cuts planned by 2015.

Biggest Advance

The bank’s shares climbed as much as 6.1 percent in Paris
trading, the biggest advance since Aug. 1. They rose 5.3 percent
to 46.59 euros by 1:47 p.m., extending gains over the past 12
months to 43 percent and valuing the company at 37.2 billion
euros. Over the same period, BNP Paribas SA, France’s largest
bank, increased 34 percent and the Bloomberg Europe Banks &
Financial Services Index climbed 14 percent.

The earnings show Societe Generale’s “robustness” and the
bank is “in a position, in 2014 and beyond, to seize growth
opportunities,” Chief Executive Officer Frederic Oudea, 50,
said in the statement.

The company said it fully repaid three-year loans from the
European Central Bank known as Longer-Term Refinancing
Operations.

“We have done it in a regular way” during 2013, Chief
Financial Officer Philippe Heim told journalists at a press
conference, declining to provide the amounts originally
borrowed. Societe Generale reiterated that it exceeds the 100
percent Basel III 30-day liquidity ratio designed to force banks
to hold enough easy-to-sell assets to resist a credit squeeze.

Consumer Banking

Consumer-banking earnings rose 11 percent in the fourth
quarter from a year earlier, Societe Generale said in the
statement. Net income at the French consumer-banking unit
increased to 281 million euros from 254 million euros. In
Russia, the company’s largest market by clients outside of
France, consumer-banking profit climbed to 69 million euros from
61 million euros in the fourth quarter of 2012.

Societe Generale’s operations in emerging markets such as
Russia and Central Europe carry “low” risk, Deputy CEO Severin
Cabannes said in an interview with Bloomberg Television. Market
volatility since the Federal Reserve’s tapering “has been well
managed and our situation is rather good,” he said.

The corporate and investment banking unit had a 29 million-euro loss compared with a 245 million-euro profit a year
earlier. Earnings were hit by a 446 million-euro antitrust fine
from the European Union, the company said.

EU Fine

In December, the European Commission, the EU’s executive
arm, fined six companies a record 1.7 billion euros for
allegedly rigging interest rates. Societe Generale’s fine was
the second-largest after Deutsche Bank AG’s 725 million euros.
The bank has blamed a single ex-trader it didn’t identify for
attempting to rig rates between March 2006 and May 2008.

Deutsche Bank, Germany’s largest bank, posted a fourth-quarter loss on legal costs and accounting charges. Credit
Suisse Group AG, the second-biggest Swiss bank, had a fourth-quarter profit that missed analysts’ estimates after setting
aside 514 million Swiss francs ($572 million) for U.S. tax and
mortgage litigation.

Societe Generale reported the Euribor fine as an expense.
Provisions for litigation remained at 700 million euros at the
end of the year from three months earlier, it said in the
statement.

The core Tier 1 capital ratio under Basel III rules rose to
10 percent at year-end from 9.9 percent in September, it said.

Investment Bank

Revenue at Societe Generale’s global-markets business was
1.04 billion euros in the fourth quarter, rising from 977
million euros a year earlier, it said. Sales from fixed-income,
currencies and commodities trading fell 39 percent in the
quarter while equities trading revenue rose 93 percent to 646
million euros.

“We have capacities to win market share in fixed income,”
Cabannes told reporters. Last year Societe Generale hired fixed-income front-office staff and will keep hiring this year,
Cabannes said. “We will create a few dozen new jobs in various
locations and not only in the U.S.”

The five biggest U.S. investment banks saw their total
revenue from trading fixed income, currencies and commodities, a
mainstay of their business, drop 4.2 percent in the fourth
quarter to $10.2 billion, data compiled by Bloomberg Industries
show. At Deutsche Bank, sales from investment banking and
trading fell 27 percent, led by a 31 percent drop in debt-trading income, the Frankfurt-based company said last month.

Fixed Income

Societe Generale, which plans to outline its financial
goals at an investor meeting in May, has said it will reinforce
its fixed-income activities by gaining full control of broker
Newedge Group.

Societe Generale and Credit Agricole SA, France’s third-largest bank by market value, said in November they’re in talks
to swap stakes in Newedge and asset manager Amundi Group. Credit
Agricole would increase its stake in Amundi to 80 percent from
75 percent, while Societe Generale would gain ownership of
Newedge.

Societe Generale expects to close the Newedge deal probably
during the second quarter, Cabannes told journalists.

Societe Generale confirmed it targets a total return-on-equity, a measure of profitability, of about 10 percent by the
end of 2015 compared with 8.4 percent last year, excluding
exceptional gains and charges.